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Ash
Ash, Solicitor
Category: Law
Satisfied Customers: 10915
Experience:  Solicitor with 5+ years experience
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I am one of three directors of a technology company ABC LTD.

Customer Question

I am one of three directors of a technology company ABC LTD. The company has a contract with a client to deliver software and IT services. The directors also have individual Limited companies to manage their own parallel freelance IT consultant income streams. ABC Ltd has recently received payment for services provided to the client. For various financial reasons (including unequal share distribution), one or more of the directors would rather NOT withdraw salary or dividends from ABC Ltd, but would rather invoice ABC Ltd from their personal companies for the services provided to the client. In effect, ABC Ltd would be outsourcing the work on behalf of its client.
Is this a conflict of interest with respect to a director of ABC Ltd also invoicing the company? Is it acceptable to revoke directorship from ABC Ltd (temporarily) to accommodate this alternative method of payment?
Submitted: 2 years ago.
Category: Law
Expert:  Ash replied 2 years ago.
Alex Watts :

Hello my name is ***** ***** I will help you with this. Please note that I am a working Solicitor and may be on and offline as I have to attend Court and meet with clients, even at weekends. As such you may not get an instant response when you reply as this is not an ‘on demand’ live service, but rest assured I will be giving your question my immediate attention upon return. There is no need to wait here, you will get an email when I reply.

Alex Watts :

No

Alex Watts :

This is no conflcit

Alex Watts :

Indeed many Companies do this

Alex Watts :

What will need to happen is on the annual accounts it will need to say that ABC was invoiced from Company X,Y,Z who is a Director of ABC Ltd

Alex Watts :

But yes it is quite common

Alex Watts :

A Director of X,Y,Z can invoice ABC instead of taking a dividend

Alex Watts :

Can I clarify anything for you about this today please?

Customer:

Thanks for the prompt response. Is this still OK if the director of ABC Ltd, is also set up as an employee under PAYE within ABC Ltd?

Alex Watts :

Yes it is

Alex Watts :

As long as it is all open then it is fine

Alex Watts :

Does that help?

Customer:

Yes - just a bit surprised. Sounds too good to be true. I assumed HMRC would frown upon this, and regard it as behaviour not in the best interests of the company (ABC Ltd).

Customer:

By "Open", you mean as long it is declared on the annual accounts?

Alex Watts :

Yes that is correct

Alex Watts :

Can I clarify anything else for you?

Customer:

Not for a minute doubting the validity of your response, but can you point me to the best online source that formally articulates the legality of this. It would be a useful document to assist in discussions with my co-directors.

Customer:

Many thanks for your help

Alex Watts : You would need to see an accountant for that. But it is not excluded under the Companies Act 2006
Alex Watts : Does that clarify?
Alex Watts :

If this answers your question could I invite you leave feedback on my service which I hope has been excellent today, if you need more information or help then please click reply.

Please remember that I am always happy to help if you have future questions, even if I am in Court I can normally respond within a few hours. For future information, please start them with ‘For Alex W’.

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Customer:

Alex,

Customer:

Hi I've been away for a few days so sorry for the delay. I am getting conflicting opinions on this subject, both from individuals and other online documentation. See this link for an example of where this seems to be something HMRC would frown upon - http://www.greenaccountancy.com/services/i-am-a/director/

Customer:

In particular, the statement "However any work that is of the nature of acting as a director cannot be invoiced and any type of work that you don't already have a business in cannot be invoiced". As a Director of ABC Ltd, the work I do is the same as the work I do as Director of my own company XYZ, which would seem to me to be the first scenario in the aforementioned statement, thus making invoicing ABC illegal?

Alex Watts :

ABC and XYZ can invoice each other. if ABC contracted the services of XYZ to run and direct the company this would be legal

Alex Watts :

Does that clarify?

Customer:

Not quite - it is not Director related duties. ABC wants to contract the services of XYZ (IT consultancy) to do the work that ABC is contracted to do for the client. As the same person, it would be the Director of XYZ doing the work rather than the Director of ABC. Still OK?

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